IPOs - getting the price and timing right

It is unlikely that we can time everything right in life, and for companies, it is no different.

Bursa Malaysia is on target to have 60 new companies listed this year on the local bourse, having seen 33 companies listed up to July 2, 2025.

Of the 33 companies, 24 were listed on the ACE Market, while another six were listed on the Main Market.

The balance three were listed on the LEAP Market.

Sadly, compared to the bumper year last year in terms of oversubscription and price performance – not only on the day of listing but also post-listing (short of having the listing) – most initial public offerings (IPOs) this year did not perform well.

In one of the IPOs, shares were undersubscribed, while in another, the Investment, Trade and Industry Ministry (Miti) allocation for bumiputra shareholders fell short of subscription, resulting in the shares being clawed back to other bumiputra and public applicants.

Two other IPOs saw the offering price slashed to attract market demand, while one IPO even pushed back its IPO journey by a couple of months due to concerns of lukewarm response amid external uncertainties.

The right valuation

While timing an IPO is one factor that can determine its success or failure, another important consideration is the pricing of the IPO itself, as new shareholders want some meat left on the table to chew instead of being slaughtered by market sentiment.

Towards this end, the general perception of investors is that companies that come to market should be priced at an attractive price-to-earnings ratio (PER) with decent earnings growth expectations.

PER, as a tool, is commonly used to value most companies, except for real estate investment trusts (REITs), which are valued based on dividend yield, and the property sector, which is measured on a price-to-book or price-to-revalued net asset value basis.

To date, of the 30 IPOs listed on the Main and ACE Markets, only seven companies are trading above their respective IPO prices, with gains ranging from 1.7% to as high as 94.3% for Oriental Kopi Holdings Bhd.

On the flip side, the disappointing performance among the other 22 IPOs saw price corrections of between 3.8% and up to 41% for West River Bhd.

The next question investors may have in mind is whether these IPOs were priced correctly –or, in other words, what went wrong? Was it the timing, the pricing, or both?

As for IPOs this year, other than Paradigm-REIT, which was priced at a 5.77% yield based on its IPO price, most other IPOs were priced either based on the latest full-year earnings or on annualised earnings for the latest financial period ended, divided by the enlarged share base.

In this instance, the PER ranged between eight times for Reach Ten Holdings Bhd to as high as 34.8 times for Eco-Shop Marketing Bhd, which was seen as rich, and the lukewarm response saw the IPO price being slashed.

However, the same cannot be said of Oriental Kopi, which came to market at a historical PER of just above 20 times, but the market was willing to pay a premium for the strong growth momentum foreseen.

Pricing an IPO is a crucial step in the whole IPO journey, as licensed investment advisers are given the task of pricing it right based on investors’ feedback, market comparables, as well as the IPO client’s understanding.

While the IPO offer price based on historical PER or annualised PER for the current year may be one yardstick for investors to gauge whether an IPO is attractive or not, earnings delivery is the key determining factor post-listing.

As all IPOs coming to market are required to report their latest quarterly statements just days before hitting the gong, investors have an opportunity to gauge the company’s latest financial performance and whether it can deliver what is expected.

Disappointing earnings, even after normalising one-off listing expenses, can be brutal as investors seek the exit door.

Not easy to time an IPO

As for timing, companies getting listed this year have already started embarking on their IPO journey well in advance, some as far back as 18 to 24 months before.

While 2024 was a splendid year for IPOs, market sentiment has shifted this year due to external uncertainties and a slowing domestic economy.

During the preparatory stage of IPOs, principal advisers stay in close contact with investors to ensure they are able to price it right based on market demand and sentiment.

In some cases, an IPO cannot be delayed as it would mean added cost, as the regulatory framework requires audited statements to be no more than six months old.

An additional audit would mean further delay, and the cost for a company going to market will increase.

A word of advice: While an IPO journey is demanding due to the coordination needed among advisers to ensure success, timing the IPO is never an easy task.

Having said that, once an IPO has launched its prospectus, delaying it due to market sentiment should never be exercised, as one can never perfectly time the date of listing.

Worse, when investors who have applied for an IPO are given an opportunity to withdraw their applications, there could be a serious setback as investors exit, at no loss, even before the gong is hit.

While this may be seen as fair to investors, the damage to the company’s IPO risks causing undersubscription in at least some parts of the offering.